Bootstrapping 101: Why and When to Do It

TOPICS:
Capital Funding

by Harrison Tang

It’s a nice idea to think everyone launching a startup captures the imagination (and dollars) of the first venture capitalists they pitch, and they all go on to live happily ever after. Of course, that’s usually not the case, as I learned right out of college. At the time in the mid to late 2000s when Facebook and MySpace were gaining in popularity, developing a social network aggregator seemed like a slam-dunk plan to my co-founders and me; unfortunately, the VCs we met with didn’t agree. That’s when Spokeo was born.

We could have devoted time to refining our pitch to please the VCs, but instead, we decided to pull ourselves up by our bootstraps and focus on building a product we believed would succeed. We were open-minded about various funding options, although without a track record or connection, it was nearly impossible to attract investors. What we discovered was that while we didn’t get a lot of funding, we retained control over our own destiny by making the decision to bootstrap Spokeo. With fewer cooks in the kitchen, bootstrapping makes it easier to align the entire team when changing product directions or pivoting business models, both of which are basically rites of passage for startups.

1) Recognize the Bootstrapping challenges

Finding a balance between realizing your grand vision and making ends meet can make or break the company. Without millions of VC funding in the bank, bootstrapping offers a markedly shorter window of finding a product market fit. Most bootstrapped startups lack an abundance of cash, so they are forced to confront the question of how to monetize early on.

Spokeo started out as a social network aggregator in 2006. Despite a healthy amount of press coverage and tens of thousands of users, we earned just $4 a day from ads on the site, which means changing direction wasn’t an option: it was essential. We pivoted twice and in the process discovered our users weren’t willing to pay for aggregating their own content, although they were happy to pay for searching others’. We used that insight and repurposed our technology to a social search engine in 2008. Six months later we were cash flow positive.

2) Know how to utilize Bootstrapping advantages

Bootstrapping doesn’t afford you the luxury to pay top dollars for experts, so doing your own research and learning about marketing, technology, finance, business development, and even customer service is essential.

I acted as Spokeo’s first customer service agent, which was mostly addressing customers’ angry complaints, and it took endless trials and errors to learn how to scale that part of the operation 24 hours a day, 7 days a week. It’s easily not how I imagined I’d spend my time at the top of a company, but the experience taught me more than I’d ever known before about analytics-driven operations, and it also saved us tremendous amounts of money in the process.

3) Know when to use Bootstrapping vs. VC funding

Entrepreneurs are wise to keep an open mind about their funding options. Certainly try knocking on the doors of some VCs, if for nothing else than to practice perfecting your company’s pitch and elicit some expert feedback about your idea. Yet at the same time, it’s essential to focus on developing your products and not equating pitching with building a company. With money burning every second, time is of the essence, and the earlier you can get your product in front of real customers, the more chances you’ll have to learn and iterate.

Bootstrapping may not be as glamorous as securing buckets of cash from VCs, but in the long run, it’s generally way less expensive and forces you to learn new things, including how to acquire an abundance of patience and also make your money go further. Getting help from VCs would surely alleviate many of the pain points for startups, but along the way you’ll inevitably lose some control. Ultimately, bootstrapping vs. funding is about choice, and there’s no one correct answer.

About the Author

Harrison Tang is a Co-Founder of Spokeo Inc. and serves as its Chief Executive Officer. Mr. Tang is responsible for the overall direction and product strategy for Spokeo Inc. He leads the team focusing on building an easy-to-use system that can aggregate billions of records and return results within one second. He attended Stanford University and received his Bachelor’s degrees in Economics and Electrical Engineering and his Master’s in Electrical Engineering in 2005.